Chapter 9 – Types of Business Ownership

 

 

Proprietorship – business owned and operated by one person
74% of all USA businesses
Accounts for 6% of all sales in USA

 

                Advantages: (1) decisions are made by only the owner; (2) simple process to start – just get a business license (3) profits belong to the owner; (4) pride of ownership; (5) lower taxes

 

                Disadvantages: (1) unlimited liability (personal assets at risk); (2) limited life of business (when the owner quits/can’t work, the business ends); (3) difficult to raise capital for business; (4) risk of lost is not shared   

 

Partnership - business owned and operated by two or more people
8% of all USA businesses
Accounts for 4% of all sales in USA

 

                Advantages: (1) easy to start (should have all the agreements spelled out ahead of time); (2) not many regulations; (3) not as difficult to raise capital for business; (4) combination of knowledge and skills;

 

                Disadvantages: (1) unlimited liability; (2) profits are shared; (3) limited life of the business; (4) disagreements

 

Corporation - business owned by stockholders/investors but operated by officers

18% of all USA businesses
Accounts for 90% of all sales in USA

 

                Advantages: (1) easy to raise capital (stocks, loans); (2) limited liability; (3) unlimited life of business; (4) hire specialized skills and knowledge; (5) shared risks

 

                Disadvantages: (1) difficult to start; (2) less direct control; (3) double taxation: corporate tax and individual tax; (4) limited activity

               

 

Multi-nation corporations (international or global business)  are businesses that sell or produce products in more than one country.

 

Non-profit Organizations (not-for-profit)  are institutions that try to cover their operating costs. They usually offer a service that is considered beneficial to society. (The Red Cross, religious institutions, schools, food banks, etc.)

 

Franchises – individual business people buy a business, but a certain percentage goes back to the corporation. Franchises must adhere to the corporate regulations. (McDonalds, Krispy Cream, Starbucks)

 

Ways of financing businesses: (1) stocks; (2) line of credit from a bank; (3) bonds – long term loan. Annually you receive interest and the principal at the end of the term;

 

Ways of Growing

Types of Mergers

(1) horizontal mergers – businesses in the same industry that combine for greater market share and production. Example: the merger of two car dealerships.

(2) vertical mergers – businesses at different stages of production in the same industry that combine to become more efficient in a market. Example: cars manufacturer merges with a tire manufacturer.

(3) conglomerate merger – different industries merge to broaden business opportunities. Example: a car dealership merges with a music company